Female Board Directors May Reduce Risky Business Deals

As the push for gender equality in the workplace continues, a number of research studies are backing up the demand by revealing that the placement of women in power play roles within a company works significantly to the benefit of an organisation. Not only does having women in the workplace mean a greater diversity of thought, but a new study published in the Journal of Corporate Finance from UBC’s Sauder School of Business has found that women can save organisations money and protect companies from making bad business decisions.

Women Are More Savvy Shoppers

The study based its conclusions on an examination of 458 merger attempts made by S&P 1500 companies done between the years of 1997 to 2009. Most of these companies only had one woman on their board of directors, but a difference was measurable nonetheless. The study found that those companies who had female board members were far less likely to approve any mergers or acquisitions that they believed would be to the detriment of the company.

These companies were also able to reduce the price they paid for acquisitions by a startling 15.4% per each female director on their board.

Kai Li, co-author of the study, said that the result improved shareholder value in companies that had female directors. “Female board members play a significant role in mitigating the empire-building tendency of CEO’s through the acquisition of other companies,” said Li. “On average, merger and acquisition transactions don’t create shareholder value, so women are having a real impact in protecting shareholder investment and overall firm performance.”

Cautious Optimism Cited As Key Difference

Li attributes the difference between male and female board member decision making to their level of confidence. “In a corporate setting, CEO typically is male and the majority of the board are male, so they have this overconfidence and are more likely to make deals happen,” said Li. “But female board members play a more disciplined role, ’Let’s stop. Let’s think about it. Let’s talk about opportunity. Let’s talk about the price.’”

Female directors tend to be less interested in pursuing risky transactions and instead seek out deals that promise a higher ROI before going ahead with an acquisition.

Li also believes that female directors are far less optimistic about future cash flows, and are less likely to agree that a merger will lead to huge cost cutting discounts on current and future operating costs.

The study suggests that women prevent hasty business decisions, which is partially why each additional female director on a company’s board was found to be able to reduce a company’s attempted takeover bids by as much as 7.6%.

The Road To Fair Female Representation Stretches On

A growing number of women are assuming board director roles in Australia. In 2008, only 8.3% of women were in directorships on ASX 200 boards (EOWA’s 2008 Australian Census of Women in Leadership). Less than 10 years later in February 2014, 17.6% of women are present on these boards (Australian Institute of Company Directors, 2014).

Women tend to be better represented in particular industries. According to research conducted by Women on Boards in 2008, women accounted for 30% of the board directors in top not-for-profit organisations. As of June 2012, women held 38.4% of Government board appointments, and 41% of the 1633 new board appointments were awarded to women (FaHCSIA, 2012).

Women also have a strong presence in universities, with the governing councils of Group of Eight universities in Australia being 33% female and close to 40% of the Group of Eight senior committee members being women (Group of Eight and Member University Websites, 2012).

While the numbers are improving, with women accounting for just over half of the world’s population, fairer representation is still being sought. Several institutions worldwide are now demanding that a set minimum number of women be present on an organisation’s board of directors within the next 5 to 10 years.